CREDIT card firms must cut or stop fees for customers who are in persistent debt, the financial watchdog has announced.
The new rules for lenders set out by the Financial Conduct Authority (FCA) is aimed at helping those who are stuck paying more in interest, fees and charges than they are paying off their balance.
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Banks and building societies must come up with a repayment plan for customers who’ve been in debt for three years even before the borrower contacts them about the issue.
If the customer still can’t make the payments, firms must either reduce, waive or cancel any interest or charges for customers who’ve been trapped in a cycle of debt.
Lenders will also be able to cancel or suspend credit cards for customers struggling to get out of debt but who aren’t working with the provider to help pay them off.
This is to stop them spiralling even further into unmanageable debts – but they can only cancel it if they can justify it.
How to cut the cost of your debt
BEING in large amounts of debts can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money
Work out your budget – by writing down your income and taking away your essential bills such as food and transport.
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.
Groups and services like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
The financial regulator first told credit card providers to start notifying customers of the changes back in September 2018.
Lenders were told to contact users who’d spent the previous 18 months only repaying the minimum amount of their debt, and were then given another 18 months to encourage them to increase their payments with at least three letters.
The 36month period is due to come to an end this month – Halifax and Lloyds Bank have already warned customers that it would cancel credit cards for those who are in long-term debt.
Barclaycard and Nationwide customers could also lose their cards from this month, while TSB and Virgin Money said they’ll do the same from March.
The FCA believes the crackdown will save customers up to £1.3billion a year in lower interest charges.
Jonathan Davidson from the FCA, said: “My advice to consumers is don’t bury your head in the sand.
“If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t be afraid to tell them.
“If we find firms are not offering their customers the appropriate level of help, we will not hesitate to take action.”
Millions of credit card holders are making themselves £3,775 worse off by only making the minimum repayments.
The new research found that 7.5million people in the UK could be in this “dangerous trap” and could take a staggering 26 years to pay off their credit card debts.
Customers who are struggling to get out of credit card debt can also find ways to help pay it off with our guide.
